Barron: Challenges, Opportunities Exist for Community Banks
The banking industry has changed dramatically during the past 20 years, and community banks today face a variety of challenges and opportunities. So said Federal Reserve Bank of Atlanta First Vice President Patrick K. Barron in remarks to a February meeting of Southeastern community bank executives in Savannah, Ga.
Barron said that the biggest change the banking industry as a whole has seen in the past 20 years has come from geographic deregulation and expanded product lines, which ushered in an era of consolidation and greater deposit concentration. That concentration is now heavily weighted toward the nation’s largest banks.
Keeping pace in a fast-changing industry
In today’s changing banking landscape, management at community banks faces a number of challenges. According to Barron, these challenges include making sure institutions effectively manage technological advancements, comply with regulatory changes, differentiate themselves from new competition, and ensure their investments enable them to navigate today’s changing payments landscape.
As technology touches more areas of the banking business, risk management continues to grow in importance. As a result, banks are spending more money to meet ever-increasing market requirements and risk management regulations pertaining to, for example, the Sarbanes-Oxley Act, the Patriot Act, and the Bank Secrecy Act. While large banks are leading in risk management efforts, Barron noted that some impressive new risk management products are available for smaller banks.
Other regulatory issues, including complying with the Sarbanes-Oxley Act, the Bank Secrecy Act, and the Home Mortgage Disclosure Act, are also affecting smaller banks, Barron said. In addition, new competition—from retailers experimenting with new payments options to nonbank competitors such as PayPal—is nibbling away at banks’ traditional businesses.
Payment system shifts demand focus
The nation’s payments system is also in the midst of dramatic changes as electronic payments gain in popularity, check usage declines, and new check technologies reduce paper in back-office check processing operations. Banks must decide what investments to make in this changing environment, and Barron said that he’s pleased to see many smaller banks enthusiastically embracing new options, including Check 21 and check conversion programs.
Barron also encouraged community bankers to seek out their competitive advantages and then “find the will and the means to push hard in the right direction.”